Owning and running a family-owned business is a dream for some of us and a reality for millions of Americans. These businesses run the gamut from a neighborhood restaurant, to a car dealership, to a local dry cleaner. One thing that all businesses, large or small, have in common is the need to have a succession plan. Entrepreneurs are often consumed with the day-to-day management of a growing business, and don’t spend enough time planning for their transition from the business. A planned succession could include your scheduled retirement or the sale of your business for profit. An unplanned succession could result from your premature death, divorce, or long-term disability. In any case, the succession of an owner from the business results in dramatic changes to how the business is run and managed.
The following expert advice should help you to prepare and put into place a succession plan for any situation, thus securing the future of your family’s business for generations to come.
Determine if you intend to leave the business to a family member or a person outside of the family. Is there a family member that is interested in running the business? Does this person have the business acumen to run a successful business? If your answer to these questions is no, then most likely a family member would not be the best to succeed you in running the business. If you have to look outside of your family for a potential successor(s), document in writing who they are, what their job responsibilities would be, and how the transition would take place. Make sure that you identify and document both long-term and short-term to cover death/removal from the company and a temporary situation.
Put together a list of potential replacements for your current position. This list could include members outside of the family who have been supportive of your business. Talk to them about the possibility of succession in the business. Ask them for their true thoughts on taking over for you. In some cases, you might think a person would enjoy taking over for you, but in reality they would not.
Once your plan has been documented, it is a good idea to consult with a small business or estate attorney to make sure you have covered all legal aspects of the succession.
Make sure that your successor and all principals in the business are aware of your intentions. By making them aware of the plan, you are insuring that the right person is put into place once you exit the business.
It is a good idea to review your succession plan annually as your business needs may have changed or your successor’s ability to take over may have changed. In the case of a life changing event such as marriage, divorce, or the birth of a child, it may be necessary to update the plan prior to the annual review.
Too often we put off tasks that we don’t want to deal with. Many times we are too busy performing day-to-day duties to plan for the future. Succession planning is something that must be done. If ignored or put off, the survival of your family business could end up in the hands of the government.
Many times in a family business you will assume that your spouse or your child will take over the family business when you are no longer able to run the business. It is important to talk to your family members to gauge their interest in continuing the family tradition. By knowing the thoughts and intentions, you are more qualified to make an informed decision about the future of your business.
When you create a succession plan for your business, don’t do it completely on your own. Get input from your family members, other business principals and outside professionals. The more your plan is reviewed the more robust and complete it will become.
In a family business, relationships between the employees play a major role in the business and how it performs. When making a decision about your successor, don’t let how your co-workers will respond to your decision factor into your decision. So if you choose your son instead of your sister to succeed you, don’t let her emotional reaction to the choice influence your decision.
In some cases, there isn’t a family member who is either interested or qualified to take over. If that is your situation, don’t try and force someone to succeed you by offering an ultimatum. Instead, this should motivate you to solicit and recruit a suitable replacement outside of the family.
Family-owned businesses have existed since the beginning of our country. At that time, it was expected for the business to be passed down from father to son, generation to generation. Today, the assumption of a family-owned business passing through generations is not guaranteed. A well-documented succession plan can ensure that the business survives even though the leadership has changed.
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